Thursday, August 31, 2017

Doomsday Clock Reinforces Need for Safe Haven

Somewhat forgotten in recent times, ValueWalk writes that the concept of the Doomsday Clock has flared up once again, due to the possibility of nuclear war between the U.S. and North Korea. The last time the clock ticked so close to midnight, they say, was 1953, when the Soviet Union tested its hydrogen bomb.

But tensions with North Korea aren't the only thing that has investors worried, the article notes. Political uncertainty in the U.S., a weakening dollar and ongoing terror attacks have all helped reinforce the value of safe-haven assets such as gold.

The metal reestablished itself in the financial crisis of 2008-2009, when the world's stock markets fell by about 50%, or a total of $34 trillion. During this time, gold helped savvy investors stay afloat due to the negative correlation that it often has with stocks. And it did more than just shield those who owned it; between 2007 and 2009, gold rose from $670 an ounce to $938 an ounce, amounting to a gain of 40%.

Gold's bull run continued after 2009, as governments around the world flooded their economies with money in a post-crisis environment. By 2011, the metal rose past $1,900 an ounce, posting its all-time high.

The article goes on to state that the money printing that allowed gold to reach peak levels shows why the metal continues to hold its value while currencies rise and fall. Unlike paper money, gold is finite, which means governments can't simply add more gold to the system as desired.

This is why, the article argues, the gold standard can't be restored: there is simply too much money in circulation compared to the finite supply of gold. It's also why the price of gold has close to doubled in the last decade, a trajectory that the metal is all but guaranteed to continue on.

Although the gold standard was abandoned in 1971, its proponents maintain that out-of-control money printing will end in disaster. It already had catastrophic results in France, China and Germany, and Zimbabwe and Venezuela are recent examples of paper money becoming worthless due to irresponsible actions from the government.

The article concludes by reminding readers that in all of those examples, those with a significant allocation to gold remained largely untouched by the consequences of central bank manipulation. And, they believe that the same will be the case when the next crisis hits, regardless of the direction it comes from.